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Yes, We Welcome Credit Cards
an article by
Al Harberg

The five most beautiful words your customer can hear are, "Yes, we welcome credit cards." Beats the heck out of, "So, send me a check."

From your customers' perspective, when you accept credit cards, your stature goes up, while the risk of doing business with you goes down. And the monthly fees and charges that you'll pay for credit card merchant status are easily offset by increased sales.


What's in it for you?

        (1) More sales - Whether your customers have agonized over their purchases or they're making impulse buys, accepting credit cards makes it easier for your customers to buy from you.

        (2) Bigger sales - When people are playing with tomorrow's dollars, they're more amenable to purchasing multiple products, or buying the professional instead of the standard version of your software.

        (3) Better cash flow - Credit cards eliminate cod's, accounts receivables, and waiting for checks to clear.

        (4) Enhanced credibility - People assume that only established firms accept credit cards. They also know credit card purchases offer them protection from scam artists, and falsely advertised products.


What's in it for the bank?

There's a myth that banks won't grant merchant status to software authors. The truth is that every bank in your community has full-time salespeople who do nothing but sign up new merchant accounts. Like yours. They're fighting with each other to have their card swipe machines in every retail outlet in town.


Here's what the banks are concerned with:

        (1) Stability. How long have you lived in the community? If your business is a partnership, how long have the partners been together? If your partner is your spouse, how long have you been married? If you're incorporated, how long? How many years have you been at the current address? How much business experience do you have? Bankers are impressed by structure and order. You're much better off saying, "We post checks daily and deposit them every Friday," than saying, "Whenever we run low on beer, we drop off whatever checks we have at the drive-in teller next to the package store."

        (2) Customers. They're going to ask you if you see your customers face-to-face or if you're a mail/phone order company. And they're not going to be thrilled that you're a web-based company. But what they're really concerned about are chargebacks. Chargebacks are the credit card equivalent of rubber checks. If your customer disowns a credit card charge with your company, the bank will try to collect the funds from you. If they can't, they have to pay the credit card company from their own pockets. So they'd like to know a little about your customers before they grant you merchant status.

        If you're a shareware author, explain shareware to your banker. If somebody buys a commercial program and doesn't like it, the transaction is likely to result in either a chargeback or a return and refund. With shareware, the customers call you after they've decided that they like the software. So returns from unhappy customers are rare. Shareware can be a trump card with bankers.

        If you're marketing business-to-business software, be sure that your banker knows. Bankers are much more comfortable with companies that sell to businesses rather than to consumers.

        (3) Posting Bail. Your banker may ask you to set up a secured savings account for several thousand dollars to secure your credit card account.

        (4) Cash flow. The two questions your banker is sure to ask are, "What is your average ticket size, and what are your monthly revenues?" They're most impressed if your two answers are "lots" and "lots." If those aren't accurate answers, be sure to stress your strategic business plans and growth projections. Bankers are more impressed by plans and projections than they are by whims and wishes. Over the years, I've found that the difference between plans/projections and whims/wishes are that the latter use less laser toner.


Decisions, Decisions:

        (1) Which credit cards will you accept? Most U.S. banks include MasterCard and VISA in their basic package. Some include Discover/Novus. American Express, Diners Club and Carte Blanche are usually marketed separately. My experience in business-to-business transactions sees American Express cards tipping the scales slightly over MasterCard and VISA, with Discover/Novus a distant third. I've never been asked if I accept Diners Club or Carte Blanche. If you're selling any type of business software, you need American Express merchant status.

        (2) Do you want to rent a card swipe machine, or do you want to use PC-based software to transmit your data to the bank? Years ago, bankers seemed much more comfortable with issuing card swipe machines. With a bank-sponsored and -endorsed card swipe box, you have one-stop shopping for resolving anomalies in your account balance. If you use credit card software, you run the risk that the software company and the bank will each blame the other for processing problems, and you'll have more difficulty getting problems solved. Expect to pay a $25 monthly rental for the card swipe box. Software lease prices are roughly the same.

        (3) What are the costs? There will be an application fee of about $250, which should include the security deposit on the card swipe box. Make sure your application fee is refundable if they turn you down. Expect to pay about $25 per month (to rent the card swipe machine or to lease the software), plus a percentage of each sale. While it varies by bank, the American Express rate is about 3.75 percent, and the Discover/Novus, MasterCard and VISA rate is about 2.25 percent. To make your life more difficult, the credit card companies post transactions differently: MasterCard and VISA credit your account with the amount of the ticket, and debit your account monthly for fees. Discover/Novus and American Express discount each ticket and credit the discounted amount.

        Read your contract carefully. Look out for minimum monthly fees, chargeback fees, voice authorization fees, and processing surcharges.

        The biggest cost, though, is the lost opportunity cost that you're paying today. You're losing sales from people who simply won't deal with a company that doesn't welcome credit cards. You're losing sales from people who tell you that they'll mail you their checks, but don't. Sign up for your credit card merchant status today.


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